The social contract approach to business refers to the strategy a company chooses when it accepts informal expectations from the public and makes social and environmental responsibility important to its business operations. Some companies take on this informal social contract as a point of business differentiation, while others do so to influence potential public scrutiny and backlash for noncompliance. Small businesses can distinguish themselves from larger corporations by making social responsibility a major point of business.

Damage Protection

Meeting informal social responsibility guidelines gives businesses significant protection against possible legal and reputation risks that come with walking an ethical line in business. In the information age, consumer and environmental watch groups do a good job calling attention to businesses that either stand out as social responsibility leaders or fail to deliver on expectations. Failures to participate in your communities, to treat customers and employees fairly, and to preserve the environment can all attract negative attention.

Long-Term Profitability

More positive benefits of meeting social responsibility expectations from the public can include stronger customer relationships and better long-term profit potential. Though detractors sometimes question the direct business benefits of social responsibility, a main purpose is to build deeper relationships with customers and the community. Over time, this deeper connection undoubtedly produces more sales and better profits. This is especially true of small businesses. Some customers in local markets make it a point to support local businesses that set the standard in meeting social responsibility contracts.

Costs

Meeting social contract expectations costs money. Committing to fair treatment of employees means that your company invests in training to build a culture of tolerance and acceptance. It also means that you give back to the communities you earn profits from by giving to charitable organizations and community programs. On the environmental responsibility front, it costs money to manage recycling programs and to use environmental-friendly materials and business processes.

Focus

Another common argument against social responsibility in business is that it distracts companies from a core business pursuit of profits. Detractors suggest that each dollar and minute spent focusing on social responsibility is time and money not spent on product development, marketing or other profit-generating activities. Additionally, shareholders sometimes have concerns about companies they invest in spending money to meet social expectations of the public.

About the Author

Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.